By Carl Gerhardt
June 7, 2010
In any company, it is necessary to carry out a business plan throughout its entire life cycle. Obviously, failure to “work the plan” can negatively impact business value when ownership decides to sell. Frequently, however, as the time to step out gets closer, owners may have run out of steam or do not demonstrate the desire to keep up with the fast-paced change the digital age requires. Sharp declines in a business’ value are inevitable at the most critical time of all.
As succession preparations begin, there are six critical elements that must be in place before executing a successful sale of your business.
Sales & Marketing
Too often, sales and marketing are ignored to the point that revenues either flatten out or actually begin to decline. Flat sales are satisfactory to some, but when looked at more closely, flat sales indicate that inflation is outpacing volume and profits are falling. Hence, cutting investments made in sales and marketing is not a wise decision or an effective way to make profits look more inviting.
A fully staffed, quality team is an attractive asset to a potential buyer. Many industries require that businesses are well staffed in all key disciplines of sales, customer service, and production. When achieved, a business will operate more efficiently, to the point where it can progress without constant owner oversight. A seller should not overstaff his or her business, but rather hire and retain good, experienced people in key positions who will continue with a new owner.
Unlike the pre-digital age when reinvestment in technology was not a major factor in valuating a business, in any industry today it is critical. If one does not continue to reinvest in key technology, as well as upgrade machines, it will be all but impossible to remain competitive.
Although you shouldn’t judge a book by its cover, most buyers do. A facelift and strong curb appeal will do wonders to impress a potential buyer and will instill pride in your staff members. Going to another city to tour several other similar businesses is one way to obtain ideas for your facility. Put yourself in your customers’ and employees’ shoes and decide where the best place would be to do business or to work. Then, put yourself in the shoes of a potential buyer and ask, “Is this a place I would like to come to work every day?” The answer may surprise you.
Greater Profitability = Greater Value
Equally as important as employees, business processes and appearance is a business’ presentation of financial figures. This is where the rubber meets the road for sellers when placing a value on their business. Overall, the most important factor sellers should be focused on is how well the business is positioned to sustain and grow sales and profits. Generally, owners are only as good as their last few months. If a seller is producing strong sales and profitability, they are prepared for a safe succession.
In today’s economy, some small businesses in the U.S. may require owner financing when being sold. Sellers who are prepared, mentally and financially, to finance a portion of the sale may have additional opportunities, including more candidates in the buyer pool, than those who are not. While this may be hard for some owners to swallow, if a business is appropriately positioned to be sold, it will command a fair market price or potentially an even better return with interest at a rate that should yield as much if not more than mutual funds or fixed income securities.
Furthermore, maintaining some vested interest in the future of the business with some watchdog controls that can be included in the promissory note and security agreement can be a win-win for both buyer and seller alike.
Carl Gerhardt is the president and CEO of Allegra Network, one of the world’s largest print, marketing and graphic communications franchisor linking more than 500 locations in North America and the United Kingdom including the brands Allegra, Signs Now, Insty-Prints, and American Speedy Printing. Carl and his wife Judy owned and operated their own successful Allegra Network franchise for nearly 20 years before selling the $2.3 million operation in 2003. Carl is a PrintImage International/NAQP Honorary Lifetime Member and can be reached at [email protected].